Listing New Securities

The Admission Process and Documentation for an AIM IPO

The Admission Document and Disclosure

As mentioned in Chapter 2, a prospectus is required in two circumstances:

  • where an issuer is making an offer of transferable securities to the public; and
  • where an issuer is seeking admission to a regulated market.

The rules introduced by the Prospectus Directive in July 2005 and, in particular, the requirement for all prospectuses to be approved by the FSA were viewed by AIM as potentially undermining one of its key competitive advantages: the ability for issuers and their advisers to control their own documents and, consequently, their own fundraising timetables. As a way of partially mitigating these concerns, in October 2004 AIM ceased to be a“regulated market”, becoming an “exchange-regulated market” instead.

As a result of the “de-regulation” of AIM’s status, an AIM IPO or offering requires an FCA-approved prospectus only where an “offer to the public” is also being made. An AIM IPO conducted via an institutional placing will not normally incorporate an “offer to the public” for these purposes42, so an AIM admission document will typically not need to be approved by the FCA. The minimum content requirements for an admission document are set out in Schedule 2 of the AIM Rules and are drafted by reference to the specific requirements of Annexes I to III of the Prospectus Rules, although certain of the more onerous disclosure requirements have been carved out or left to the nominated adviser’s discretion.

Key items carved out include:

  • pro forma financial information where there has been a “gross significant change” from historical financial information;
  • the operating and financial review;
  • capital resources;
  • research and development, patents and licences;
  • administrative, management and supervisory bodies and senior management43;
  • remuneration and benefits;
  • working capital44;
  • capitalisation and indebtedness;
  • interests of those in the offer;
  • terms and conditions of the offer;
  • admission to trading and dealing arrangements; and
  • documents on display.

Other than in exceptional circumstances, AIM companies incorporated in an EEA State need to report on the basis of IAS, whilst AIM companies incorporated outside the EEA must prepare and present accounts in accordance with either IAS, US GAAP, Canadian GAAP, Australian IFRS or Japanese GAAP. Under Schedule 2 of the AIM Rules, historical financial information included in admission documents must be prepared on the same basis.

As mentioned above, in addition to items carved out altogether, certain items have been carved out on a “qualified basis”, which means that they may be excluded at the discretion of the nominated adviser. These items include:

  • principal markets; and
  • shareholdings and share options of non-board members of senior management.

Besides the content requirements derived from the Prospectus Rules, the additional requirements of Schedule 2 to the AIM Rules must be adhered to45, and as mentioned in Chapter 5, a competent person’s report will also generally be required in the context of a resource company seeking admission to AIM.

In addition to the specific disclosure requirements, an applicant must satisfy a general duty to disclose in an AIM admission document any other information it considers necessary to enable investors to form a full understanding of: (i) the assets and liabilities, financial position, profits and losses, and prospects of the applicant and its securities; (ii) the rights attaching to those securities; and (iii) any other matter contained in the admission document.

In view of an applicant’s overriding general duty to disclose all material information, and of the responsibility reserved to the nominated advisers in ensuring compliance with the rules, there may well be cases where “carved-out” items ought to be disclosed as a matter of best practice.

In September 2014, the London Stock Exchange issued AIM Notice 40 to confirm modifications to the AIM application process following the imposition of further EU sanctions against Russia on 31 July 2014 (Council Regulation (EU) No 833/2014) and the amendment to this regulation published on 12 September 2014 by Council Regulation (EU) No 960/2014 (being together, the “Regulation”). The London Stock Exchange requires that all AIM companies must inform their nomad immediately if either now, or if it becomes the case in the future, that they fall within the Regulation (or any subsequent amendment to those regulations). The AIM company application form has been amended to include a confirmation that the company seeking admission to AIM does not come under Articles 5.1 or 5.2 of the Regulation.

The Nominated Adviser

Each applicant must appoint, and retain, a nominated adviser (often referred to as a“nomad”) at all times. The London Stock Exchange approves, and maintains a list of, corporate finance firms that are qualified to act as nomads. The nomad is responsible to the London Stock Exchange for assessing whether an issuer is appropriate for admission to AIM, for advising an issuer on the admission process46 and for providing guidance on its continuing obligations under the AIM Rules.

In addition to assessing the appropriateness of applicants for AIM, a nomad is obliged to comply with the AIM Nomad Rules, the AIM Rules and any notices issued by the London Stock Exchange and to act with due skill and care at all times. It must be available to advise and guide the AIM company at all times and must allocate at least two appropriately qualified staff to be responsible for each AIM issuer for which it acts. The Nomad Rules comprise certain “principles” that must be satisfied in all cases and, in respect of each principle, a non-exhaustive list of actions that the London Stock Exchange would normally expect a nomad to undertake in satisfying that principle47.

Nomads’ responsibilities, which are owed principally to the London Stock Exchange, broadly fall into three main categories: those that arise in the context of an applicant’s admission to AIM48 (“Admission Responsibilities”), those that apply following the IPO (“Ongoing Responsibilities”) and those that arise upon a nomad’s engagement as nomad to an existing AIM company (“Engagement Responsibilities”).

i. Admission Responsibilities +

There are five principles with which a nomad must comply in meeting its responsibilities in respect of an issuer’s admission to AIM:

Admission Responsibility 1: In assessing the appropriateness of an applicant and its securities for AIM, a nomad should achieve a sound understanding of the applicant and its business.

In meeting this, the nomad should usually:

  • ensure that it has, or has access to, appropriate knowledge of the applicant’s area of business (taking into account its country of incorporation and operation), using in-house specialists or external experts where necessary to achieve this;
  • consider the applicant’s sector, proposition, business plan or similar, historical financial information and other corporate information, including the due diligence performed further to Admission Responsibility 3;
  • consider any issues relating to the applicant’s country of incorporation and operation and any other issues that might affect its appropriateness;
  • undertake a visit to the applicant’s material site(s) of operation and meet the directors and key managers. The necessity of meeting any other relevant material stakeholders (e.g., key shareholders) should also be considered; and
  • consider appointing its own legal advisers who are independent from the applicant to assist in the nomad’s understanding of the applicant and to provide advice to the nomad that is independent of the applicant.

Although it is not specifically required under Admission Responsibility 1, the London Stock Exchange has said that it expects a nomad to provide advice to the company on the appointment of advisers.

AIM Regulation49 published clarificatory guidance on some of the key factors which should be considered by nomads when assessing the appropriateness of an applicant's securities for AIM:

  • consideration (including the spread and nature of the shareholders buying the securities) should be given to how the securities are likely to trade when admitted to AIM, following discussion with the company’s broker(s) and potential market makers;
  • consideration (including the spread and nature of the shareholders buying the securities) should be given to how the securities are likely to trade when admitted to AIM, following discussion with the company’s broker(s) and potential market makers;
  • limited issuances of securities should give rise to questions about the rationale for the applicant to seek admission to AIM;
  • where there are concentrated shareholdings (e.g. connected due to family, business or other interests/ connections) securities issues should be considered in
  • conjunction with issues of undue influence, control and ongoing corporate governance arrangements within the company.

Admission Responsibility 2: In assessing the appropriateness of an applicant and its securities for AIM, a nomad should: (i) investigate and consider the suitability of each director and proposed director of the applicant; and (ii) consider the efficacy of the board as a whole for the company’s needs, in each case bearing in mind that the company will be admitted to trading on a UK public market.

In meeting this, the nomad should usually:

  • issue and review directors’ questionnaires and review directors’ curricula vitae. In the case of directors who are not UK-based, appropriate investigations should be undertaken;
  • test the information revealed by the questionnaires and curricula vitae, such as by conducting press searches, obtaining Companies House checks, taking up references and, where appropriate, obtaining third-party checks50;
  • extend these investigations and considerations as appropriate to key managers and consultants who are discussed in the admission document;
  • consider undertaking such investigations in relation to substantial shareholders at admission as appropriate, especially where there is uncertainty as to their identity or where they are not established institutions, in particular to enquire about the existence of persons exerting control over the applicant;
  • analyse any issues arising from these investigations, in particular as to how they could affect the applicant’s appropriateness to be admitted to AIM and be publicly traded;
  • consider each director’s suitability and experience in relation to his (proposed) company role and consider whether each (proposed) director is suitable to be a director of a UK public company (i.e., the London Stock Exchange considers that nomads should advise the company on the appropriateness of the directors);
  • consider the board of directors as a whole in relation to the applicant’s needs, given the type of the applicant, its size and expected profile, and the fact that the applicant will be admitted to a UK-based, English-language public market; and
  • consider, with the directors of an applicant, the adoption of appropriate corporate governance measures.  

Admission Responsibility 3: The nomad should oversee the due diligence process, satisfying itself that it is appropriate to the applicant and transaction and that any material issues arising from it are dealt with or otherwise do not affect the appropriateness of the applicant for AIM.

In meeting this, the nomad should usually:

  • be satisfied that appropriate financial and legal due diligence is undertaken by an appropriate professional firm or firms;
  • be satisfied that appropriate reviews of working capital and financial reporting systems and controls are undertaken (usually including reports or letters from accountants to the applicant);
  • consider whether commercial, specialist (e.g., intellectual property) and/or technical due diligence is required and be satisfied that it is undertaken where required;
  • agree the scope of all such due diligence and reports (including, in relation to the working capital report, assumptions and sensitivities); and
  • review and assess the above due diligence, reports and adviser comfort letters, considering any material issues, recommended actions or adverse analysis raised, and be satisfied either that appropriate actions have been undertaken to resolve such matters or that such matters do not affect the appropriateness of the applicant for AIM.  

Admission Responsibility 4: The nomad should oversee and be actively involved in the preparation of the admission document, satisfying itself (in order to be able to give the nomad’s declaration) that it has been prepared in compliance with the AIM Rules for Companies, with due verification having been undertaken.

In meeting this, the nomad should usually:

  • oversee and be actively involved in the drafting of the sections of the admission document that relate to the business of the applicant51 and be satisfied that they take into account matters raised by due diligence;
  • be satisfied that the financial and additional-information sections have been appropriately prepared;
  • consider whether any specialist third-party reports are required (e.g., for companies in particular sectors, such as property or biotechnology);
  • be satisfied that appropriate verification of the admission document and any related notifications has taken place; and
  • be satisfied (in the terms of the nomad’s declaration (see below)) that the admission document complies with the AIM Rules, liaising with the AIM team of the London Stock Exchange.

Admission Responsibility 5: The nomad should satisfy itself that the applicant has in place sufficient systems, procedures and controls in order to comply with the AIM Rules and should satisfy itself that the applicant understands its obligations under the AIM Rules.

In meeting this, the nomad should usually:

  • be satisfied that procedures within the company have been established to facilitate compliance with the AIM Rules, e.g., release of unpublished price-sensitive information, required notifications (AR 17) and regulation of close periods; and
  • be satisfied that the directors have been advised of their and the company’s continuing responsibilities and obligations under the AIM Rules and that the directors are aware of when they should be consulting with or seeking the advice of the nomad.

AIM Regulation52 published guidance on how a nomad should assess compliance with AR 31 (AIM company and directors’ responsibility for compliance). Nomads are encouraged to consider such an assessment in a more meaningful way, which would go beyond merely a review of the relevant documents to include an assessment of whether those policies are capable of working in practice, taking into account the nomad's knowledge of the company and its management. The London Stock Exchange also noted that such systems, procedures and controls must be in place by the time of admission of the securities.

AIM Regulation53 published guidance encouraging nomads to approach directors’ education in a practical and meaningful way, tailoring it to the individual characteristics of each board so that the education can be as effective as possible54. It set out some non-exhaustive guidance, including:

  • the approach to directors’ education should be of the same standard, whether for new admissions, for the take-on of existing AIM companies or in relation to the appointment of new directors to existing AIM company clients; and
  • the education should be led by the nomad so that the nomad can satisfy itself as to the level of understanding and needs of that particular board whilst also providing itself with a good opportunity to get to know its client further and establish the basis of their working relationship for the future so that each understands their respective roles.

In addition to complying with the principles described above, the nomad must give a declaration to the London Stock Exchange (known as a “nomad declaration”) confirming that:

  • to the best of its knowledge and belief, having made due and careful enquiry and considered all relevant matters under the AIM Rules:
    • the admission document complies with Schedule 2 of the AIM Rules (see above for details); or
    • where the applicant is a quoted applicant (see below), the requirements of Schedule 1 (and its supplement) to the AIM Rules have been complied with;
  • it is satisfied that the applicant and its shares are appropriate to be admitted to AIM, having made due and careful enquiry and considered all relevant matters set out in the AIM Rules and the Nomad Rules;
  • the directors of the AIM company have received advice and guidance (from its nomad and other professional advisers) as to the issuer’s responsibilities and obligations under the AIM Rules in order to facilitate due compliance by the company on an ongoing basis; and
  • it will comply with the AIM Rules and Nomad Rules applicable to it in its role as nomad.

The nomad will typically receive comfort letters from the issuer and its advisers in order to support its declaration; in our experience, some nomads are now requesting comfort letters from their own lawyers as well.

ii. Ongoing Responsibilities +

Nomads must satisfy the following principles on a continuing basis:

Ongoing Responsibility 1: The nomad should maintain regular contact with an AIM company for which it acts, in particular so that it can assess whether: (i) the nomad is being kept up to date with developments at the AIM company; and (ii) the AIM company continues to understand its obligations under the AIM Rules.

In meeting this, the nomad should usually:

  • maintain regular contact with the AIM company, in particular to be satisfied that the nomad is kept up to date so that it can advise the company on its obligations under the AIM Rules (especially the requirements to disclose price sensitive information under AR 11 and to identify breaches of the AIM Rules (e.g., in relation to AR 17 disclosures of specific types of information)); and
  • assess whether the AIM company continues to understand its obligations under the AIM Rules, such as by having discussions with the directors where appropriate, and satisfy itself that any procedures required pursuant to Admission Responsibility 5 (see above) continue to be effective.

AIM Regulation has re-emphasised that the quality of a nomad’s communication with its AIM clients is an important aspect of the AIM regulatory framework. The level and the nature of contact with AIM clients are matters that the Exchange leaves to nomads to determine on a case-by-case basis. However, it follows that where a nomad has active and meaningful contact with its clients, in circumstances where a company’s financial position is deteriorating, the nomad will be well placed to assist the company to fulfil its regulatory obligations to make timely and full disclosure to the market.

Ongoing Responsibility 2: The nomad should undertake a prior review of relevant notifications made by an AIM company with a view to ensuring compliance with the AIM Rules.

In meeting this, the nomad should usually:

  • review in advance (although without prejudice to the requirement of Rule 10 of the AIM Rules to release information without delay) all notifications to be made by an AIM company for which it acts to ensure as far as reasonably possible that they comply with the AIM Rules. Where the nomad reasonably believes a company’s directors have appropriate knowledge and experience of the AIM Rules, review of routine announcements may not be necessary; and
  • include the nomad’s name and a contact name on all such announcements that a nomad reviews, other than routine announcements.

Ongoing Responsibility 3: The nomad should monitor (or have in place procedures with third parties for monitoring) the trading activity in securities of an AIM company for which it acts, especially when there is unpublished price-sensitive information in relation to the AIM company.

In meeting this, the nomad should usually:

  • use suitable alerts or other triggers to notify itself of substantial price or trading movements. This can be satisfied via the broker;

  • contact an AIM company where appropriate if there is a substantial movement to ascertain whether an announcement or other action is required, liaising with the London Stock Exchange where appropriate; and

  • consider the necessity for arranging relevant press monitoring, particularly when there is material unpublished price-sensitive information in existence.

Ongoing Responsibility 4: The nomad should advise the AIM company on any changes to the board of directors the AIM company proposes to make, including: (i) investigating and considering the suitability of proposed new directors; and (ii) considering the effect any changes could have on the efficacy of the board as a whole for the company’s needs, in each case bearing in mind that the company is admitted to trading on a UK public market.

In satisfying this, the London Stock Exchange would usually expect the nomad to:

  • be satisfied that the AIM company knows to liaise with the nomad at the earliest opportunity about proposed changes to the board, in order to allow the nomad appropriate time to comply with Ongoing Responsibility 4;
  • in relation to new directors, consider the requirements of Admission Responsibility 2 (see above) and take the appropriate actions, including issuing and reviewing directors’ questionnaires, reviewing the directors’ curricula vitae and testing such information;    
  • consider whether such proposed directors are suitable to be directors of a UK public company and consider the effect of the appointment on the efficacy of the board as a whole for the company's needs; and
  • in relation to the removal of directors, consider how this affects the efficacy of the board as a whole for the company’s needs, make any recommendations it thinks fit to the AIM company and consider whether this in turn affects the AIM company’s appropriateness for AIM.
iii. Engagement Responsibilities +

When a nomad is being appointed by an existing AIM company, it must comply with the following:

Engagement Responsibility 1: In assessing the appropriateness of an AIM company and its securities for AIM when taking on an existing AIM company, a nomad should achieve a sound understanding of the AIM company and its business.

In satisfying this, the nomad should usually:

  • gain knowledge of any major developments relating to the company since admission and consider their effect on the appropriateness of the AIM company; and
  • consider contacting the outgoing nomad to discuss its experiences with the AIM company. An outgoing nomad should be constructive and open (to the extent possible) with a new nomad that contacts it for such discussion. Clearly there are obvious potential client confidentiality issues for the outgoing nomad to consider. These are acknowledged by the London Stock Exchange, which suggests that confidentiality agreements with clients should be amended going forward to allow these discussions to take place.

Engagement Responsibility 2: In assessing the appropriateness of an existing AIM company and its securities for AIM, a nomad should: (i) investigate and consider the suitability of each director and proposed director of the AIM company; and (ii) consider the efficacy of the board as a whole for the company’s needs, in each case bearing in mind that the company is admitted to trading on a UK public market.

Engagement Responsibility 3: The nomad should satisfy itself that the AIM company has in place systems, procedures and controls sufficient to comply with the AIM Rules and should satisfy itself that the AIM company and its directors understand their obligations under the AIM Rules.

iv. Other Ongoing Responsibilities +

Under AIM Nomad Rule 19, a nomad has an obligation to provide the London Stock Exchange with such information as it may reasonably require, as well as to comply with other liaison obligations. In particular, a nomad should inform the London Stock Exchange as soon as practicable if it believes that it, or an AIM company, has breached the AIM Rules or the Nomad Rules. Whilst some nomads have felt that a requirement to inform the London Stock Exchange of any breach is inappropriate (and may damage client relationships), the Exchange has said that it considers that nomads have regulatory responsibilities to the London Stock Exchange which may take priority over those that they owe to their AIM companies.

Ancillary Documentation

i. 10-Day Announcement +
The applicant must provide to the London Stock Exchange, at least 10 business days before the expected date of admission to AIM, the information specified by Schedule 1 of the AIM Rules (AR 2), known as a “pre-admission announcement”. This includes the company’s name, address and country of incorporation; a description of the company’s business; the number and type of securities for which it is seeking admission (including the number and type of securities to be held as treasury shares); an indication of whether it will be raising capital on admission; the names, addresses and functions of the directors and proposed directors; the persons who are interested in 3 percent or more of its securities; its anticipated accounting reference date; the name and address of its nominated adviser and broker; and details of where the admission document will be available. Quoted applicants are required to produce additional information as set out in the supplement to Schedule 1 of the AIM Rules.
ii. Other Application Documents +
At least three business days before the expected date of admission, an applicant must submit to the London Stock Exchange:

  • an electronic version of its admission document (AR5);
  • a completed application form (AR5); and
  • a declaration in the prescribed form under Schedule 2 of the Nomad Rules from the nominated adviser (as described in section B above) (AR5).
iii. AIM Fee +

Fees are payable on the basis of a post-admission invoice (AR 37).

Fast Track to AIM

There is a fast-track admission route to AIM for certain existing quoted companies. The rules permit companies that are already listed on certain markets including Australian Securities Exchange, NYSE Euronext, the Deutsche Börse Group, the Johannesburg Stock Exchange, NASDAQ, the NYSE, NASDAQ OMX Stockholm, SIX Swiss Exchange, the TMX Group or the UK’s Main Market (referred to collectively as “designated markets”, a current list of which can be found on the London Stock Exchange website) and that have been trading on a designated market for at least 18 months to use their existing annual reports and accounts as a basis for admission to trading on AIM.

Issuers wishing to use the expedited admission route will need to comply with limited eligibility conditions (see Chapter 5 for further details) and will need to appoint a nomad and broker.

The key advantage of the fast-track route is that an issuer’s annual report and accounts take the place of the admission document and are simply supplemented by a fuller pre-admission announcement. Admission on this expedited basis will require the following:

At least 20 business days before the expected date of admission, the applicant will need to submit to the London Stock Exchange the information required by the “10-day announcement” referred to above, plus:

  • the name of the designated market on which it has been traded and the date from which it has been traded on such market;
  • confirmation that, following due and careful enquiry, it has adhered to any legal and regulatory requirements involved in having a listing on the relevant designated market;
  • the address of a website providing the company’s latest published report and accounts, public documents and announcements it has made public over the last two years, and details of the rights attaching to its securities (and, if more than nine months have elapsed since the financial year-end to which its most recent annual accounts relate, interim results covering no less than the six months from the year-end)55;
  • details of its intended strategy following admission;
  • a description of any significant change in the financial or trading position of the issuer that has occurred since the end of the last financial period for which audited accounts have been prepared;
  • a statement confirming that the issuer’s directors have no reason to believe that the working capital available to the issuer or its group will be insufficient for at least 12 months from admission;
  • details of any lock-in arrangements required pursuant to the AIM Rules (as described in paragraph iii of Chapter 5);
  • a brief description of the arrangements for settling transactions in its securities;
  • any other information that has not been made public and that would otherwise be required to be disclosed in an admission document if the standard route had been followed (in addition to the specific disclosure requirements for admission documents, note that the AIM Rules require that an admission document must contain any other information an issuer reasonably considers necessary to enable investors to form a full understanding of the assets and liabilities, financial position, profits and losses, and prospects of the issuer and its securities; the rights attaching to those securities; and any other matter contained in the admission document. This information would also need to be included in the fast-track announcement, or a link provided to the information, to comply with the requirement that information equivalent to that required by an admission document is made available); and
  • the number of each class of securities held as treasury shares.

At least three business days before the expected date of admission, the applicant will need to submit to the London Stock Exchange:

  • an electronic version of its latest report and accounts;
  • a formal application for the admission of the securities;
  • the nomad’s declaration referred to above; and
  • the relevant AIM fee.

Although the procedure should indeed provide a faster entry procedure for qualifying applicants, the content requirements in relation to the pre-admission announcement will still require due diligence and verification procedures to be undertaken to ensure that the applicant has published accurate information equivalent to that required by an admission document and to enable the required working capital comfort to be given.

Route to the Main Market

One of the effects of AIM’s status as an “exchange-regulated market” rather than a “regulated market” is that moving to the Main Market using a fast-track process is not an option for AIM companies. An AIM company wishing to move up to the Main Market will need to produce a full, FCA-approved prospectus and will need to adhere to the relevant listing requirements and conditions. (See Chapters 1 to 4 for further details.)

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